Accounts -v- VAT returns - do they match?

Accounts -v- VAT returns – do they match?

Accounts -v- VAT returns values not matching can lead to problems with HMRC.

One of the standard checks run by HMRC when reviewing an organisation’s records is to compare the statutory account with the VAT returns submitted.  It is always interesting, or perhaps more accurate to say worrying, that so many companies do not do this comparison as a matter of course.  I suspect that Euro Systems (Scotland) Ltd wish they had done so; here’s a little of their story of woe.

While there are often differences between the accounts and the VAT returns it is good practice to reconcile them on an ongoing basis.  To include a reconciliation as part of ongoing management checks can only prevent issues further down the road.  Clearly Euro Systems did not do so and instead found itself in the First Tier Tribunal (TC07438) appealing against a VAT assessment for >£250,000.

There had been a long running argument leading up to the hearing which started with an HMRC compliance visit verifying a repayment claim and ended with HMRC carrying out a full reconciliation of the VAT returns to the financial accounts.

Clearly all was not well with the record keeping at Euro Systems and the company were formally informed of HMRC’s concerns at the lack of basic information being available with specific records not being retained.

The assessment resulted from sales in the accounts being significantly higher than those declared on the VAT returns.  At the same time the cost of sales and VATable expenses were significantly lower than suggested by the input VAT claims.

New accountants were appointed whose review concluded that input VAT had been significantly over claimed as well as turnover issues but a best judgement appeal sought to nullify the assessment.  The taxpayer lost its appeal with the tribunal holding the methodology leading to the assessment was using best judgement.

Perhaps this is another case in a long line that goes to show you just have to make sure it is the right tax at the right time being declared on the VAT returns.

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Posted in VAT Appeals.